Interest Only Payment Calculator

Homebuyer Reality Check: It's a buyer's market

Gather all of the financial information that will influence your decision, such as the amount you have to put toward a down payment, a reasonable price estimate of the home you want to buy and the property tax rates for the location. Once that's collected there are several online calculators that can help you evaluate gauge at what point buying a home may begin to save you money, Ginnie Mae offers one at: http://tinyurl.com/3rt5n37 . Still, the biggest financial obstacle for many potential buyers is coming up with the down payment. A typical conventional bank mortgage requires 20 percent. On a $200,000 home that's $40,000. Some lenders may allow less but will require a home mortgage insurance policy. The premium will be added to the mortgage payment, pushing the monthly payment higher. This spring, home prices in major cities were back to the same levels reported in the summer of 2003. Although prices in several locations are beginning to rise again, even with the increases, housing remains the weakest part of the U.S. economy. Prices won't fully recover until the glut of foreclosures for sale is reduced, companies start hiring in greater numbers, banks ease lending rules and more people get comfortable again with buying a house. After sitting on the sidelines the Seattle-area couple took stock of their financial situation: Gjerde, a freelance foreign-language translator, was able to maintain a consistent income during the recession; and Young's job at a public relations agency remained secure. They decided a few months ago to meet with a mortgage banker and start the process.

Only 2 Reasons for an Interest Only Mortgage Loan - Mortgage ...

As you can see it’s a tricky move to get someone approved for the loan and for the banker to “write another mortgage”. Well chances are the couple will be very happy because they get to buy their home, but do they really know what they got themselves into?

That 4.5% interest rate will be fixed for 5 years and then continue adjusting each year with the current interest rate . With rates as low as they are now I don’t see how they could get any lower in 5 years so it will probably go up. After the 5 years are up the principal also gets added back into the mortgage which increases the monthly payment as well.

If your interest rate went up to 6% and the principal was added into the mortgage your payment would go from $800 to $1150. Now, if it was too high at $1000 to get approved for the mortgage how are you going to afford $1150 down the road? People seem to just say “Ehhh I’ll worry about it later, right now I’m getting a home!” 5 years later we have the biggest real estate crash the country has ever seen. 

That puts blame on mortgage lenders for giving the loans to these people just “to write another mortgage” and blame on the people taking these mortgages without knowing enough about them.

Why Interest Only Loans were Created

I can see 2 reasons why these loans are in exsistance and the first is for a person who flips houses for a living. Someone like this needs to keep all monthly costs as low as possible and an interest only loan is the way to go.

Assume this person has $1700/mo available borrowing power and finds his first home for $150,000 just like the example above. The fixed rate 30 year loan will cost $1100 including taxes which limits this house flipper to one home at a time.

If they got an interest only loan it would be a monthly payment of $800 and they’d be able to buy and flip 2 homes at a time to double profits. They aren’t worried about paying down principal like a home owner because they’ll be selling it within a few months anyways.

As a homeowner if you have an interest only loan you won’t pay down a dime of your home during the first 5 years then face an increased interest rate and added principal.

The second reason I can only KIND OF agree with is if a couple only has one income at the time due to this 2011 economy and the spouse plans on getting a job in the next year or two to support the increased payment that will be coming. Or similarly, a promotion in the near future for one or both people buying the home.

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